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Breaking News: Judge Stops New Overtime Rule

Just in time for the holiday season, employers have a reason to be thankful. On November 22, 2016, a federal judge in Texas issued a nationwide preliminary injunction blocking the U.S. Department of Labor’s new overtime rule.

The overtime rule, issued earlier this year, would have raised the minimum salary level for the “white collar” exemption from overtime under the Fair Labor Standards Act (“FLSA”) from $455 per week to $913 per week. That change was due to go into effect on December 1. Notably, the Department of Labor’s rule did not modify the duties tests for the “white collar” exemption.

The judge’s decision came in a lawsuit, State of Nevada v. United States Department of Labor, filed by a number of states who sought to have the rule invalidated. A second lawsuit, filed by the U.S. Chamber of Commerce and other business organizations, was consolidated with the first case, although the judge’s analysis focused on the state plaintiffs.

The crux of the judge’s decision was that the Department of Labor lacked the authority to issue the new rule. The FLSA itself does not set any minimum salary level for the “white collar” exemption, and the existing level was created by regulation. According to the judge, the salary level was permissible as long as it was merely a threshold element of the exemption analysis, with the statutory duties tests retaining their role as the central factors. However, the Department of Labor’s new rule would have made the salary test, and not the duties tests, the primary factor in determining exempt status. The judge concluded that this outcome is not permitted by the FLSA and that the Department of Labor exceeded its rulemaking authority.

While this ruling is welcome news for employers in general, the extent of its impact is unclear. First, many employers will have already taken steps to comply with the new rule, such as modifying work assignments or increasing salaries. The court’s ruling means that employers are legally able to reduce the salaries below the proposed salary level and maintain employees’ exempt status, but there may be practical and morale concerns with doing so. Second, the court’s ruling is not a permanent injunction. The lawsuit is ongoing, and the preliminary injunction may be lifted at any point in the future by the same judge or by an appeals court. Third, the judge’s emphasis on the relative importance of the duties tests and salary test may simply encourage the Department of Labor to issue another rule with the same salary level but with more stringent duties tests, thus retaining the duties tests as the primary factor. We will keep you updated on any developments.

In the meantime, employers who are still working on finalizing their responses to the proposed rule can take a breath, enjoy the reprieve, and celebrate Thanksgiving without stressing about the Department of Labor.